Canadian National R.R. (CNR.TO)

Likes this rail, but hasn’t bought more. It recently had a rise. If it pulled back to $71-$75, he would be a buyer, but preferably closer to $71. This is the best of the pack. If you believe in the US recovery, which he does, this rail is ideally placed.

Canadian National (CNR-T) or Canadian Pacific (CP-T)? Very similar, but CP has had the better of the run of the 2 and has come back down. However, right now this one looks like the one he would rather have. Seems to be less volatile and a little more of a straight run. A little bit more of a “steady Eddie” going up, and is now sort of plateauing, ready to make the next move up.

(Canada is cheap from a cyclical basis, so his 3 Top Picks are ones that fit that theme and are cheap with good price momentum.) Transports led the market down, however at this point they are starting to lead. He is seeing a divergence between transports and the broad market. This is best in class. Great set of assets. Valuation has always been strong. Scores in the top 20% for low volatility. This is one to hold for the long-term, and will benefit from a cyclical recovery. Dividend yield of 1.96%.

2.8% bond maturing Sept 22/25 at $102. He is all for quality these days and this is a solid single A credit that has zero problems on the credit side. There are very few of these kinds of bonds in Canada.

It is starting to get a little more attractive down here. This one has held up a little better than CP-T because of less exposure to commodities. We are closer to the end of the down cycle in commodities and you have to buy the rails in advance. You might be early getting in now, but 2 to 3 years from now you will be happy.

Falling demand in Asia has led to weak commodity prices and weak demand for commodities. Because of this, rails in general have been difficult. Transport as a whole is behaving very poorly. He wouldn’t try to pick a bottom, but would rather wait to see something turn for the better. A great company and is really well run.

The rails have had a difficult last 12 months. There was a decline in shipments from the agricultural sector. Crude by rail is declining and the fracking sand shipments are declining also. Coal is a big component, too. Intermodal traffic is also weak. He thinks it is early to be in the rails.

Oil prices will have an effect on all of the rails, based on their shipping oil. Production is going to slow down and we haven’t seen the bottom of that yet. The ability to increase prices has been a big driver of their earnings and revenues over recent years. With the economy slowing down, this is going to occur less and less. This will be a tough stock to keep owning.

Has been hit like all the rails recently. There will be less energy moved and the economy will be soft this year. They can extract some earnings growth through lower costs. He likes it here.

A great name to own in this kind of environment when returns look dicey. North American rails have become a little more popular as a result of what Canadian Pacific (CP-T) is doing with Norfolk Southern. This is the best operating company in North America. Their operating ratio is low. Great allocators of capital. Dividend yield of 1.6%.

Good name. Technically the charts don’t show that you are going to get a whole lot of chances to get it a lot cheaper. Volumes have been steady. It seems to get stuck at around $90. Thinks it is going to stay in the kind of channel it has been in for a while.

From a seasonal perspective, transportation really comes into play in March and April. This is a good company and there is a lot going on in the rail sector right now. The rails got ahead of themselves back in 2014 on their average overall P/E ratio. The chart shows it is forming a little descending triangle. If it breaks below that, that would be negative. If there is an uptick, it would be good to step into this one, perhaps before it seasonal period.

He likes this company, mainly because he likes the growth in North America. The growth will benefit the rails in general, but specifically this one.

One of the better operators in North America. It is not super cheap. They have less commodity exposure than CP-T. They are not cheap enough right now to buy. He would prefer CP-T in that case. He does not see growth in earnings this year.

If you don’t think oil is going to be surging higher, this is a really great place to be. If you are looking at this based on what is going on in the market right now, which will probably last anywhere from 3 to 6 months, he would consider buying a Call Option. It gives you leverage and exposure to a very good railway company, and there is a lot of interest in this space right now. He would do a $74 Strike 6 months out.